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Wine Spectator Report: Is California Facing A Grape Shortage?

California’s grapegrowers finally have something to cheer about: grape prices are going up. After nearly three years of sluggish sales and an oversupply of wine, vintners have cleared their cellars of older vintages and are looking to increase their grape purchases. But two small harvests and an absence of new plantings mean they are competing for a smaller amount of fruit. That demand is pushing up grape prices and bulk wine prices. “If you’re buying wine on the bulk market, or you’re a négociant, your costs are going to go up,” said Adam Lee of Siduri and Novy Family wines.

On average, the price of all California grape types rose in 2011. The average cost of red grapes increased 12% per ton while white grapes jumped by 8% compared to 2010, according to a preliminary report on the 2011 grape crush by the U.S. Department of Agriculture (USDA).

At the height of the recession, California’s wine industry faced an excess of wine. Sales of bottles priced at $20 and above slumped as consumers traded down to cheaper brands. Winery cellars backed up with unsold wines as restaurants and retailers tried to move existing inventory. Over the past year, however, Americans consumed more wine and reached for more expensive bottles. Impact Databank reported that sales increased in volume by 1.7% in 2011. With cellars now empty, wineries are scrambling to buy grapes. “For the first time in three years most varietals across California are in demand,” said Brian Clements, vice president of California wine brokerage firm Turrentine.

Some of California’s largest producers are flexing their financial muscle to secure access to fruit. Winery giant E. & J. Gallo has signed long-term contracts with grape growers for 90,000 acres and announced that it plans to add 10,000 more, mainly in the Central Valley, over the next year. “With our forecasts for projected growth in the wine business, we are and will continue to make major long-term financial commitments to the California wine industry,” E. & J. Gallo president and CEO Joe Gallo told Wine Spectator.

A pair of challenging vintages is adding to the pressure to find good grapes at good prices. California’s winegrape harvest declined by roughly 9% in 2011, according to the California Department of Food and Agriculture, and was also down in 2010 (although the last two harvests still ranked among the largest in California history). Another issue facing wineries is that the number of new vineyards being planted has slowed since 2006. “No one is planting right now,” said Ed Sbragia of Sbragia Family Vineyards.

With analysts predicting that California’s shortages could last for several years, wineries will have to consider their options carefully. Grape prices could stay high because of demand even if the state sees a large harvest in 2012. “If we had a bumper crop this year, it would be absorbed no problem,” said Clements. “Across the board there are more buyers than sellers.”